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Lessons from the data: Five key business insights into Africa today

More than just economic factors can and do affect a business climate. A compilation and in-depth assessment of major data and indexes gauging African nations’ business performances finds commonalities in the most prosperous countries and offers direction to profitable investment.

Businesses only looking at economic data to judge where in Africa to invest are similar to blinkered horses who only see a fraction of the entire picture. IOA’s 2017 Africa Country Benchmark Report (ACBR) presents the most comprehensive view of the intermingling factors that impact one another in the real, complex world of national growth, like balls careening on a snooker table. Social factors influence business growth, while business performance affects a society’s welfare, with political implications.

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Five key business “takeaways” from the 2017 ACBR derive from many factors but all provide important signals for understanding conditions that influence business success in Africa. ACBR does more than list data. Analysis of 34 international indexes and 30 key indicators — nearly 20,000 data points in total — separates transitory developments from the permanent conditions that hinder or boost a country’s business climate.

Here are five important lessons for the business community that emerge from the ACBR’s holistic approach to African data:

In the ACBR section devoted to business, African nations score their highest rankings in their commitment to market freedom. Although governments embrace the concept of fewer regulations, less red tape, swifter passage of goods across borders and licensing reforms, astute business executives must separate what is ‘lip service’ from what is actual performance. As the ACBR indexes show, countries that are taking action to expand market freedoms enjoy more investment, and those investors enjoy more profitable ventures.

Lesson 2: Diversifying from commodities is key to business growth

The more African economies mature from their 150-year-old basis as exporters of raw commodities, the more sophisticated and profitable their business environments become. Angola could be a prosperous nation but for an entrenched leadership’s preference to reap quick profits from oil sales, knowing that only the country’s elite will benefit, to a comfortable extent, even when oil prices plummet. Zambia’s copper-based extractives economy is hostage to commodity price fluctuations. By contrast, prosperous Botswana is using the window of opportunity until their diamond reserves are used up to expand their manufacturing and other sectors. Mozambique fuelled their noteworthy post-civil war economic revival through economic diversification. Africa’s strongest economies are the continent’s most economically diverse, Northern Africa, Mauritius, Seychelles and South Africa, in particular. These countries earn the highest scores and ranks in the 2017 ACBR’s business assessments.

Lesson 3: Technological advancement sparks business growth

Ethiopia’s economy became East Africa’s largest economy in 2017, and Rwanda managed their remarkable economic growth, emerging from the 1994 genocide nightmare, through investment in technology. For Ethiopia, government policies promoting aviation, space exploration and industrial parks drew investors to those targeted fields. Rwanda opened Africa’s first drone airport in 2017 and created technology hubs to ensure the country’s place as the technology core for Central Africa. As overall leader in ACBR categories, Mauritius is expanding their enviable economic performance by promoting technology research and development. Morocco is broadening their well-performing economy, in part, by taking advantage of their desert expanses to generate solar electricity for export to Europe. Technology is a low-ranking 2017 ACBR 2017 category for most African nations, and much more investment is required to boost standards continentally. For those countries that have made the investment and are focused on economic development to facilitate technological growth, the dividends have paid off in new business opportunities and job growth.

Lesson 4: Military spending is bad for business

There are, of course, countries facing legitimate security threats that require armies to protect their citizens and safeguarding business interests. However, too many African armies exist only to prop up non-democratic regimes. Government leaders who count on their militaries to suppress political opposition will spare no expense to retain their power. Unfortunately, the cost comes at the expense of a healthy business environment. Money goes overseas to purchase weaponry instead of funding economic stimulus programmes internally. With a less supported and thus less healthy economy, businesses suffer. In some countries, like Lesotho, armies are destabilising forces and ruin to the business community. Knowledgeable business investors in Africa look at the percentage of military spending in government budgets and find that profitability lies in pacifism.

Lesson 5: Look to democracies for better business performance

Linked to the malady of overspending on militaries, at the expense of money spent for economic growth, is the type of government that uses armies for political purposes and the negative impact such regimes have on their countries’ business environments. Firstly, non-democratic regimes are inherently unstable, and businesses hate disruptive revolutions. Secondly, autocratic governments steal into business profitability by taking a share through bribery and the practice of inserting their rulers’ relatives onto company boards. Businesses operating in non-democratic states have little choice but to co-operate, while also being hindered by unfair competition from businesses owned by the ruling elite.

These five pointers just scratch the surface of the kinds of insights into Africa that are revealed by the 2017 ACBR’s data analysis.

The Africa Country Benchmark Report (ACBR) assesses the performance of all 54 African countries in an 800-page, infographic-driven report. This report is a key resource for any business, government, organisation or institution that will find value in country-specific and comparative assessments of African countries. The report scores, ranks and insightfully assesses each country holistically, as well as across business, economic, political and social factors. Find out more at: http://www.inonafrica.com/africa-country-benchmark-report-acbr

In On Africa was formed in 2007 with the goal of becoming the global authority on African affairs. Over the past decade, IOA has positioned itself as one of the top research firms in and focused on Africa, with an increasing presence across the continent and an ever-expanding list of international clients. IOA and its team of more than 300 expert consultants combine to provide its clients with decades of experience and expertise in a wide range of research and advisory-related areas. IOA also regularly publishes various Africa-focused reports and position papers.